Philip Pilkington: How Krugman’s Addiction to the ISLM Model Has Led to Repeated Bad Forecasts

By Philip Pilkington, a writer and research assistant at Kingston University in London. You can follow him on Twitter @pilkingtonphil. Originally published at Fixing the Economists

Some people often ask why I complain about Krugman. “Hey Phil, Krugman is a good guy. He likes government spending. You like government spending. Therefore you must like Krugman,” says our budding young Socrates. Well, I’ll tell you why: because Krugman is a pretty awful economist who pushes completely outdated views and tricks people into thinking that they’re cutting edge. Anything that is of interest he poaches from elsewhere, typically engages in dubious accreditation and ultimately gets it wrong.

The reason for this? Because Krugman loves models and hates books. He loves little simplifications of the world and hates complexity. That is why he has been wrong on most substantive issues over most of his career. What are the roots of this hatred? From his public writings it appears to have something to do with the influence of JK Galbraith and American institutional economics (which, in Krugman’s mind, is tied up with all heterodox economics).

In the mid-1990s Krugman used to write awful reviews of Galbraith’s books. The motivation appears to have been to consign the true economic progressivism and eclecticism that Galbraith represented to the bin and promote a new type of thick-skinned liberal of the type that Krugman saw himself to be. In his review he wrote,

The truth is that constructing and maintaining a good society has turned out to be far more difficult than anyone imagined a generation ago. To be a serious liberal, one must confront that difficulty, make hard choices, and persuade others to do the same. It is therefore a cause for sadness that America’s most famous liberal economist has produced a manifesto that simply assumes most of the difficulties away.

This was the 1990s, of course; in the middle of the era of Clinton and all that. While heterodox economists were warning about income inequality and the dangers of running a fiscal surplus and a trade deficit at the same type (by identity this means rising private sector debt), Krugman was proclaiming that the welfare state in Europe was causing the unemployment there and that, well, Pete Peterson might have a point about cutting social security. That is what being a ‘serious liberal’ meant to Krugman in the 1990s and attacking heterodox economics — which he associated with institutional economics — was his way of promoting his creed.

Yesterday, Krugman discussed the always excellent Lars Syll’s criticisms of the ISLM and the old demons bubbled up once more to the surface. He claims that Syll is promoting some sort of model-free institutional economics. He gives a tired (and incorrect) little history of American economics that basically says that while the institutionalists were fumbling in the Great Depression, Paul Samuelson delivered the country from evil with his neo-Keynesian doctrine.

Actually, the real history is much more complicated and involves a textbook by Lorie Tarshis that was rejected due to a right-wing conspiracy launched by William F. Buckley and a massive war that allowed for budget deficits. Samuelson had very little to do with any of this history. But he was the one who succeeded in popularising neo-Keynesian economics to students in the 1960s (while losing debates against the real Keynesians at Cambrige, UK…).

Anyway, back to ISLM. Krugman’s main contention is that while us silly heterodox types are fumbling with our clumsy ‘institutionalism’ Paul Krugman and his ‘serious liberal’ friends are taking a hard-headed view of the world and calling for fiscal stimulus. What’s more, he’s utilising the ISLM framework and, according to him, the ISLM framework makes True predictions about the world. He writes,

You see that a lot among people who reject IS-LM as too simple and unsubtle: what they have ended up doing in practice, for the most part, is predicting soaring inflation and interest rates, because whether they know it or not they have effectively reverted to crude quantity-theory and loanable-funds models.

Meanwhile, those of us working with IS-LM, and arguing that we had entered a liquidity trap, predicted little effect from the Fed’s balance sheet expansion, certainly not an explosion of inflation; low interest rates despite government borrowing; severe adverse effects from austerity. And we were right – because in reality, using a “silly” little model is a lot more sophisticated than talking grandly about complexity, and then trying to make diagnoses with no explicit model at all.

Okay, apparently the two alternatives are (i) worship ISLM or (ii) predict soaring inflation and interest rates. I don’t know who Krugman is writing for these days but only the most ignorant idiot with no interest in economics and no access to the internet could believe such preposterous tripe. But given that Krugman thinks that his little ISLM is such a great predictor let’s see how it fared when he applied it in what he would call a non-liquidity trap environment.

Back in 2003 Krugman saw George W. Bush run up large fiscal deficits to fund the war. While most heterodox economists were reluctantly saying that this bout of Military Keynesianism would buttress a US economy greatly weakened by the dot-com crash a few years before, what was Krugman and his little toy models telling his readers? Well, in an article entitled A Fiscal Train Wreck he was telling them that interest rates would soar and there would be a fiscal crisis.

With war looming, it’s time to be prepared. So last week I switched to a fixed-rate mortgage. It means higher monthly payments, but I’m terrified about what will happen to interest rates once financial markets wake up to the implications of skyrocketing budget deficits.

From a fiscal point of view the impending war is a lose-lose proposition. If it goes badly, the resulting mess will be a disaster for the budget. If it goes well, administration officials have made it clear that they will use any bump in the polls to ram through more big tax cuts, which will also be a disaster for the budget. Either way, the tide of red ink will keep on rising.

Whoops! In March 2003 Krugman was calling for mortgage rates to rise… just at the beginning of what would turn out to be the biggest housing bubble in US history. What actually happened? Mortgage rates basically flat-lined for the next 5 years.


Of course, rising interest rates were precisely what his little ISLM model told him would happen. He figured that since the economy was not in what he calls a ‘liquidity trap’ then a rise in the budget deficit would lead to a rise in interest rates across the board.

But the heterodox types were more focused on the fall-off in demand that had occurred three years earlier and the rising private sector debt that was starting to fill in the gap. This, together with the Iraq War, were what was going to drive the economy forward in the next few years. They were not concerned with interest rates rising because they knew that the Fed ultimately sets interest rates and that money is endogenous.

In his book The Predator State ‘non-serious liberal’ JK Galbraith’s equally ‘non-serious liberal’ son laid out what actually happened in this era (note that interest rates are not even mentioned because to heterodox economists the idea that fiscal deficits cause a rise in the interest rate is manifestly absurd),

From 1997 to the peak in 2000, business nonresidential fixed investment rose by around $300bn 1996 dollars, a gain of about 2 percent in relation to GDP, or from 12.2 to 14.4 percent. Most of the gain was technology investment. In the two years after the peak, the falloff was on the order of $150bn. The entire falloff in business investment was then replaced by the increase in the military budget put in place by the Bush administration following the terrorist attacks on September 11, 2001, and the invasion of Iraq in 2003. As a result the US economy returned to nearly full-strength by mid-2006, and once again the stock market recovered. (p100)

So, what is the lesson here? Simple. The ISLM is a crappy tool for understanding the economy. Krugman is not a very good forecaster and is more often wrong than right (a broken clock and all that…). And what Krugman thinks to be ‘institutionalism’ (i.e. heterodox economics) is a far better paradigm if you want a realistic view of macroeconomics. If you want to learn outdated and oversimplified rot while playing at being a ‘serious’ and ‘hard-nosed’ liberal read Krugman; if you want to gain interesting perspectives on economics and fight for true progressivism read Syll and Galbraith.

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  1. paul

    Nothing makes my scalp tighten more than these moral freeloaders who insist on making ‘hard choices’ and ‘tough decisions’ for others outside their milieu.
    You change so we don’t have to.
    Your whole life is degraded to prevent them so much as changing their mind.

  2. YankeeFrank

    It feels to me like Krugman is a victim of his own whoring success. When, in the 90’s, he promoted NAFTA, “free” trade and globalization, he was promoted and lauded because he was a supposed liberal who “learned the truth” and came into the neoliberal fold. He’s rusty and tired, just like you’d expect from a Nobel laureate Princeton economist with a perch at the NYT. But what kind of shocks me is his outright intellectual dishonesty and cheap and apparently intentional misunderstanding of ideas like MMT and of course the much better economists mentioned in the OP. Oh well. We can’t all have integrity or the word wouldn’t mean anything, right?

  3. middle seaman

    The untold piles of great work done by NC hide some pieces of lesser quality and rude insults made typically by persons some of us will never say hello to. Krugman, like all of us, is far from perfect. Daily blogging brings with it mistakes and error of judgement. But the concerted effort to depict Krugman as a hack are pure garbage.

    1. Yves Smith Post author

      While I appreciate the kind words about the blog, you apparently do not read Krugman’s columns in the New York Times. Krugman regularly prostitutes himself for the Democratic Party. He goes on full bore attack mode against the Republicans with great enthusiasm. Yet when Obama engages in conduct he’d deplore if it came from a Republican, Krugman either conveniently ignores it or comes up with a lame hand-wringing apology.

      If that isn’t hackery, pray tell what is. Krugman has totally squandered his good karma for having the guts to attack the Bush Administration about Iraq long before that was a safe position with his shameless cheerleading for a deeply corrupt Administration.

      The only thing you can criticize Pilkington for is being too shrill. The substance of his assessment is dead on.

      1. profoundlogic

        Agreed. Krugman is just another example of the failure of the intellectual class, part of the new breed of “liberal” quacks who profess to represent a progressive agenda and the common good. What they really represent are their own interests, and that usually boils down to who will pay them the most to promote “the cause” or who is most likely to place them on a pedestal where they can preen their feathers.

      2. roadrider

        I’m not an economist but I have to agree that Krugman does come off as a shill for Obama particularly with respect to the ACA. To be fair, he does criticize the insufficient stimulus (and did so in real time) and has dinged Obama and the Dems for their embrace of austerity. But he is carrying water for them in a political sense and I’ve been reading his stuff with a far more skeptical eye than I did before.

      3. Deloss Brown

        Yep, PK is an unabashed Democrat. No, he does not believe in unlimited deficits forever. No, he does not believe in handing deficit spending to the rich. He believes in spending on things like teachers. Go to his blog and scroll down to March 24, “Layoffs in Maine.”

        Yes, this administration has not been everything we all hoped for, and I suppose that’s an understatement. But if you remember 2008, if the other party had won, we would have had Sarah Palin for VP. In 2012 we would have had Mitt Romney and Paul Ryan (who is a frequent target of PK’s scorn). Yes, PK continues to cheer for the Obama administration, particularly in the way he keeps counting ACA enrollment. But our chances of electing helpful Congressional candidates depend by an uncertain algorithm on Obama’s popularity.

        I would not have Yves’ job if you paid me millions (which she does not get anyway), and if I had it I would not censor Pilkington’s post. But if you think Paul Krugman is the devil incarnate, you will be amazed, amazed, I tell you, at some of the other people out there. And though to readers of NC they seem laughable, sometimes they win elections.

        “Whoring success” oh dear, oh dear, oh dear

        1. Yves Smith Post author

          You are greatly understating the degree to which he defends Obama and the Administration. He regularly sells the “big bad Republicans are stymieing Obama” line, when in fact Obama uses that as cover for how far to the right he governs. He meets them more than 85% of the way and only tries to retain some minor optical difference. Look how, for instance, in the Presidential debates, that he agreed with Romney on Social Security (as in cutting it) and how in the 2011 “grand bargain” talks, he offered much deeper cuts than Boehner.

          And Krugman doesn’t make excuses for Obama on the ACA. Did you forget about the TransPacific Partnership? Oh, and on Keystone, Krugman again blamed Obama’s support of it on big bad meanie Republicans (he called it a “cave in”) when Obama is pro-fracking! I could go on

          As for McCain and Palin, that is besides the point. We are talking about Krugman’s loyalty to a President who has sold out the middle class at every possible turn.

          1. Deloss Brown

            How can I not agree with you on (almost) all points? I’m flattered that you’d take the time to refute me, but horribly embarrassed that I have taken your valuable time. I don’t think the problem is PK. The problem is that we did not not not get what we thought we were getting with BO (except that we knew he wasn’t Sarah Palin or Paul Ryan), and I have sent him and various other elected officials many terse letters saying in large type “FIRE TIMOTHY GEITHNER” and “FIRE ALAN SIMPSON” and “DO YOU ACTUALLY KNOW WHO YOUR CONSTITUENTS ARE?” (And you told us to write to Lawsky, so I wrote to Lawsky.)

            We have been saved from many of our President’s bad decisions simply because they weren’t bad enough for the Republicans. But I’m not as sure as some of your readers seem to be that Obama is a tool of Wall Street. I wish he were more like FDR. But if we had to do the elections over, I wouldn’t stay home, nor would I pull the Republican lever. I’m not as sure as you are that Palin and Ryan are beside the point. God help us if we’re forced to find out.

            As for PK being a whore and a prostitute, my perhaps unschooled response would be “not proven,” or maybe the less controvertible, “Quel goût exquis !

          2. binky bear

            Isn’t the entire point of Krugman as a phenomena the establishment of a left limit of reasonable discourse? Krugman would not be where he is in academia nor would he have the soapbox at the NYT (a grossly corrupt enterprise) if he did not willingly and profitably participate in the system that uses him in that role. Even the NYT liberal Krugman is opposed to ending NAFTA, etc.

            Pilkington is complaining that a [contrived] unicorn is not a mermaid. The people who are in the system have no interest in overthrowing the system and rarely tolerate efforts to change little bits here and there. But Krugman is as far out as the establishment is willing to go at this time. It seems like this realization is hard for some to arrive at.

            1. Yves Smith Post author

              No, I disagree. There are people who have Damascene conversions in greater or lesser degrees. Look at Gary Gensler, former Goldman partner who was tough on financial firms. Or Sheila Bair, who followed conventional wisdom on favoring banking deregulation, but saw how the banks went crazy when given too much free rein and became a tough-minded regulator.

              Krugman could not have been dislodged from his post at the NYT. The paper simply wouldn’t dare. He has a Nobel Prize. He is at a level where there are no more mountains to conquer (no one is gonna give him a policy role). Why is he sucking up? Is it just a deeply ingrained bad habit? He has power that he squanders by using it mainly to amplify and refine Administration messaging.

      4. M Raymond Torres

        Yes, Pilkington is being shrill. He’s using ad hominem arguments that are beneath the thinking of those who follow and care about the issues he is addressing. He’s also using a little sleight of hand (sleight of mind?) when he compresses history the way he does in an attempt to paint Krugman a villain.

        Pilkington says his attack on Krugman, here as ever, is about Krugman’s abilities as an economist. I’m not qualified to assess Krugman’s abilities as an economist as, presumably, Pilkington is, at least insomuch as his is an informed opinion. But, is that true or is it possible that his attack is otherwise motivated? Let’s look.

        Well, careful reader, the links to Krugman’s writings that purport to support Pilkington’s criticism only get the job done if you ignore the fact that Krugman has very publicly changed his thinking. So Krugman’s crime is what then? A failure to be sufficiently prescient in the face of speculation by others that has turned out to be right and then to have the nerve to abandon his erroneous views when the present revealed a story that refuted them. Oh, and crappy models.

        M Krugman, j’accuse!

        So, anyway, maybe there is some actual basis for Pilkington’s assessment of Krugman as crap. If there is he should show us because his claims about Krugman appear mostly spurious and, where genuine, appear to reflect nothing more sinister than a difference of opinion. As it is he’s just a rabble rouser shooting from the hip and his attacks look like nothing so much as an attempt to get famous by being the “Man Who Shot Liberty Valance” of economic opinion writing.


        Speaking of shrill…As far as views about Krugman’s boneheadedness (or bootlicking, as many of you would have it) go, I understand frustration with his slow evolution on many matters. It is a frustration that I share.

        Maybe you want more of a champion in him than he is or is willing to be and maybe you wish the NYT hadn’t skewed so far into infotainment as to make it virtually impossible for anything radical to appear in its pages, I know I do.

        It’s just that, while I may agree with the many who think that dispatches from the heights of such an authoritative platform (authority deserved or not) do carry with them some additional responsibility (something Brooks and Friedman would do well to note), being completely, utterly wrong may reveal flawed thinking but it does not necessarily mean a flawed character.

        I, like many of you, am much more radical than Krugman. And, yes, I sometimes find his optimism about the motives of actors in the economic saga he purports to chronicle nothing short of breathtaking. However. However. Krugman is not an office holder, policy maker, politico or politician. He’s not even a journalist. He’s merely an opinion writer. He can get it right, get it wrong, change his mind, switch sides, impute different motives to individual players on the same team, whatever, without being either a hack or a hypocrite.

        If you really care about the state of things and can’t find a more important topic/enemy than Krugman, you either need to do your homework or take a nap.

        1. Ben Johannson

          Well, you might have a point, but that Krugman has never once publicly acknowledged those who were there long before him when publicly changing his mind. There’s also his own long tradition of ad hominem against heterodox economists to consider.

          There’s also the matter of not seeing (perhaps I’ve missed it) anything in Pilkington’s critique that qualifies as ad hominem, which is an attack on a person’s character rather than their argument.

        2. skippy

          Pettifoggery is a poor substitute for a grounded argument i.e. the post is grounded on Krugman’s IS-LM worship [the ramifications therein of], where yours is on emotive tastes.

          This is the problem one always encounters with neoclassical’s, stuff – IS – until – IT’S NOT – ad infinitum, until it devolves into a quasi religious debate over the religious like icons [mathematical models] true meanings. Personally I view it as the same issues with VaR et al, everyone thought it worked [endemic fraud multiplier] until over time reality asserted its self [fraud goes quantum (boom)] . Yet – they still they tried to harden it out of devotion… mental and emotional attachment to a mathematical device [religious iconography].

          All these models seem to lay the foundation to a massively blinkered view of humanity and social systems, retroactively erasing history and context with an economic mathematical hypography from of iconography… how covenant… eh. Where in the IS – LM is the condition of starving

          skippy.. Is neoclassical theory just another seminary school discipline?

        3. Philip Pilkington

          Krugman hasn’t changed his thinking. He always says that outside of a liquidity trap a rise in the deficit would be accompanied by a rise in interest rates, just as he thought in 2003.

          You can do a little psychological profile of me if you’d like. But the reality is that the underlying model Krugman is using is wrong. It’s been said to be wrong by the Bank of England too (didn’t see that on Krugman’s blog… hmmm…).

    2. skippy


      You don’t seem to nuanced about the details unpacked in the post, but, more with brand protection.

      I’ve said it before, Krugman is neoclassical in drag w/neoKeynesian lip gloss e.g. IS-LM with Keynesian bolt on jump-starter… boom bust is in his bone marrow.

      skippy… Its like looking at Gregory Mankiw supply and demand chart as nuanced because he took 30sec to re-macro the old basic model.

    3. diptherio

      Proof of Hackery here.

      Krugman on his mid-90s debate with Galbraith the younger:

      I often regret the feeling of obligation that led me to take on that unpopular role. For one thing, there is no better way to make a man hate you than to tell him that while he was walking around priding himself on being at the intellectual cutting edge, in fact he was merely insisting that two and two must add up to at least 25. And I would much rather have interesting arguments with people who might be right than spend my time trying to explain freshman-level concepts to unwilling listeners. I would hope that Galbraith will agree with me that all these doctrines are silly. If so, he and I can go on to discuss the “real” issues.

      That, my friend, is hackery. Anyone who makes this kind of argument is off the intellectual roll-call, period.

    4. Christopher D. Rogers


      Your defence of Krugman against the attacks made by Mr. Pilkington are way off the mark, unless you believe someone being paid a fortune to shill at the NYT is somehow better than numerous heterodox economists and commentators I could mention, such as Steve Keen or Francis Coppola.

      A few facts, both myself and Pilkington are essentially pauperised, he may not like me saying this, but facts are facts. Why is this so, well maybe its because neither of use buy into the neoliberal Washington consensus that pervades most of the discourse nowadays.

      Further, as someone who actually interacts with many a person he considers good guys and one of us, I get rather morally offended, when having approached them personally to participate in gatherings that actually are of an educative nature, some of these supposed “liberals” and left of centre types ask for huge speakers fees, to essentially discuss something they believe in – which is odd, for if you actually believe in something, as both Yves does and the likes of Bill Black, all they ask for is expenses, and if they are lucky, an honorarium of perhaps US$5,000 or donation of the same fee to a favoured charity.

      Have a guess what, your liberal hero expects US$100,000 to speak for one hour, not withstanding first class airfares for two persons and all accommodation costs at 5 Star hotels – DO YOU KNOW WHAT I SAY TO THIS AS A HONEST “POOR” man?

      It’s not only Krugman, its several well known voices who in my humble opinion are greedy buggers, particularly given their requested speaker fee for one hour is more than I earn in 24 months – buy hey, I suppose I really am a left of centre type, who believes in morality and ethics – hence, I’m poor and they are rich – morally though, I’m a bloody millionaire!

      1. Yves Smith Post author

        You’ve put me on a bit too much of a pedestal. I’m not THAT charitable. I do need to be paid when I travel to speak, since it’s a custom speech and thus real work, plus I incur expenses that are not considered reimbursable expenses (blog coverage is the biggie).

        But you are correct to point out that Krugman gets paid a lot to speak (and Barry Ritholtz, who uses the same speaking agency as Krugman, tells me it’s more like $150,000 a speech) and people like him who speak to private groups often heavily recycle their speeches.

    5. Matt

      Well there was this, remember.

      In fact, however, none of that happened during Obama’s first term. But would the second term be different? For a little while it looked as if the old scandal machinery was finally springing back to life, with Benghazi, the IRS, and more. You could almost hear the sigh of contentment from a certain part of the press corps.

      But now it has all evaporated. Benghazi never made sense; it turns out that the IRS was targeting conservative as well as liberal groups. And as Chait says in the linked article, the NSA stuff is a policy dispute, not the kind of scandal the right wing wants.

      Just a policy dispute, ho-hum.

      And if you look into the nasty spat that Krugman got into with Marcy Wheeler of Jonathan Gruber’s obvious conflicts of interest with regards to the ACA, you’d see the real agenda at play.

  4. timotheus

    Krugman’s columns invariably have one or two standard phrases (as in the quote at the top) like “The truth is. . . ” or “What you need to know. . . ” He has lived too long among impressionable sophomores.

  5. Hugh

    Most modern economics is out and out quackery propagandizing for the rich and elites and defending their looting. The largest and most influential grouping of modern economists is the neoclassicals. And as skippy says, Krugman is a neoclassical with a few Keynesian flourishes. He doesn’t understand money, banking, or debt. He’s generally promoted free trade to the detriment of American workers. Krugman wrote recently that economics is not morality, but of course, that is exactly what it is. And if we look at it in this way, we immediately see how ugly and criminal it is. Finally, he has signed on to Alan Krueger dubious attempt to raise the level of structural unemployment to whatever the current unemployment rate happens to be. There is his constant shilling for the Democrats Yves points to above.

    Listen if Krugman was ever going to “get it”, he would have gotten it years ago. He is after all the “certified” class approved expert. But Krugman won’t get it, because he is ultimately a member of his class. He is of the elites, the people who manage the day to day looting of us. In this he is hardly alone, and this illustrates a much deeper problem in the so-called liberal brand of economics. Krugman, Stiglitz, Galbraith fils, Mosler (OK, Mosler is rich), all believe in the current system and look to the elites, the class to which they belong, to fix whatever needs fixing. Therein lies the central contradiction and/or hypocrisy of modern liberal economics, that its practitioners depend on the looters to end or at least ameliorate their looting.

    So when will we know when any of these get “it”? The simplest way to tell is when they reject their class and their system. Until then, expect fine words from time to time, but where the rubber hits the road an ongoing defense of kleptocracy.

    1. BillC

      Hugh, I agree with nearly all of this post, but one sentence befuddles me:

      Krugman, Stiglitz, Galbraith fils, Mosler (OK, Mosler is rich), all believe in the current system and look to the elites, the class to which they belong, to fix whatever needs fixing.

      Maybe I’d now fail the hoary old SAT questions on “which of these does not belong,” but could you briefly explain why you apply the same brush to Steiglitz, Galbraith fils, and Mosler with which you justly tar Krugman?

      Krugman always pulls his punches WRT Democrats in general and Obama in partcular. From what I’ve read, it seems the others do not. At the same time, all three appear to support chartalist/MMT foundational principles, if not the term or the approach in its entirety.

      Can you point to examples of their “look[ing] to the elites, the class to which they belong, to fix whatever needs fixing”? They may not be in the streets leading mobs with torches and pitchforks, but I have not perceived them to demonstrate the same class solidarity that you describe for Krugman.

      1. Peter L.

        I am sympathetic to the statement: “Krugman, Stiglitz, Galbraith fils, Mosler (OK, Mosler is rich), all believe in the current system and look to the elites, the class to which they belong, to fix whatever needs fixing.

        First, having read and listened to the latter three in the statement, I think I have learned a lot. I enjoy hearing what Mosler has to say, for example. However, I think Hugh is correct that they propose solutions which are primarily directed to the elite.

        I think one way to consider the issue Hugh raises is by looking at Gar Alperovitz’s work. He writes about worker owned, and sometimes worker controlled businesses in the US, and efforts of people to build local wealth independent of what our elites are doing.

        This is contrast: all over the United States people are trying to figure out solutions to their own economic problems. They have to struggle with local problems, and are so far, more or less shut out of influencing the federal government’s fiscal policies. Mosler, for one, proposes a full-employment program (which sounds OK to me, if I understand it right) but his proposal is clearly directed toward elites who would have the power to implement it on a large scale. Mosler has related enlightening, and highly informative stories about trying to explain money to elites in the US Congress. He doesn’t have too much to say about how he thinks people could actually either force our elites to implement egalitarian policies, or democratically put into effect fairer policies.

        A charitable, and probably fair, interpretation of what Mosler is doing is that he is providing policy ideas that people at the grassroots level could advocate for, and eventually use democratic processes to implement. This seems like a reasonable approach to take to the work of Stiglitz, Galbraith and Mosler. They ought to be read and understood, but one shouldn’t put any faith into the idea that they will have any success convincing our elites to implement policies that are better for most people.

        1. susan the other

          The original liberals set out to make the landed aristocracy in England obsolete. And they were successful. Their motto was competition and free trade bring about the best economy for the most people. That is still the motto of capitalism although it is no longer true because capitalism itself is too aggressive, too competitive, too productive, too impatient for returns, etc. to be viable in the long run. And we all know we are at the long end of the run. But neoliberals as well as neocons both refuse to give up on the idea of a capitalist utopia. It is no surprise that the terms liberal and conservative came together in America to mean the same thing. Since we never defined those terms in the first place. Our modern capitalist economy is no better than the old Imperialist economies; it serves the rich at the expense of the poor. Instead of mercantilist trade practices against other countries we practice corporatism. And the solution to every problem is some half-baked version of growth. It is surprising how short a time it took to destroy the credibility of that idea, only about 200 years.

          So where are the economics of maintenance? Not sustainability, because sustainability means some maximum level of sustainable growth. But the contradiction is always that any growth/all growth is based on someone else’s impoverishment or the devastation of the earth in order to achieve some gain for the entrepreneur. There is no economic model being discussed that does not maintain inequality for the benefit of the elite.

    2. diptherio

      “Listen if Krugman was ever going to “get it”, he would have gotten it years ago.” ~Hugh

      Oh, he got it loud and clear all right, decades ago. He got that if you want to make the big bucks, you don’t go biting the hand that feeds you–you give it a tongue-bath instead. Bernard Lietaer reports that when he and Kruggy were in school together and Bernard started looking at the money system, Kruggy said to him, “Didn’t they tell you? You can work on anything you want but don’t touch the money system. ” I have a feeling the Krugster knows exactly whose interests he is serving (hint: not ours).

    3. MikeNY

      Hugh, you are quite right about economics and morality. Indeed, the discipline’s abdication of all moral responsibility, and its abandonment of any moral foundation in its quixotic quest to be a science, is a large part of why it has become a burlesque show for the exclusive amusement of the rich.

      Roger Cohen in today’s Times has a good piece on how hard it is to sell the Western system and values when the perception of many in the West is that our system is a corrupt failure.

    4. Banger

      I don’t think it is fair to lump in Stiglitz with Krugman–he was the first, for example, to tally up the real costs of the Iraq War which has since proven pretty accurate if you include his revisions as the war progressed and he’s been accurate about more things than Krugman.

      But I laud you in linking economics with morality–it is vitally important that we see that connection and also the fact that economic dynamics are primarily determined by politics not markets (which cannot exist without political structures).

      1. PaulArt

        Totally agree Banger. My thought exactly. Also, do we not have any proof of Krugman changing his stance based on the evidence? He regularly shows proof in his columns about how he was once an unabashed free trader but in recent times he has changed his stance that all free trade is good. I read the guy almost every 6 hours and once upon a time I wondered why he never bashes Wall Street and in recent days he has definitely done that by pointing out that all the QE just gets stuck in the reserves and never moves out into the real economy.

        1. Yves Smith Post author

          His change on QE is because the Fed has come to recognize it isn’t working. He is not out ahead of where the Fed is privately on this one.

      1. Minor Heretic

        That’s why I always call it “re-redistribution.” The money got redistributed up. Now we need to re-redistribute it back down. Eventually we need to prevent it from being redistributed up in the first place.

  6. dcb

    I have an academic background, and I find krugman to be a disgrace.
    He routinely violates what I’d consider the ethics of an academic debate.
    he cherry picks, and avoids things he doesn’t like as if they didn’t exist
    If you want to advocate something go ahead, but talk about the downsides, address certain things, explain why it’s better.

    I can’t prove it, but I think he knows he lies and is all about protecting the status quo.
    he’s very two faced, advocating things because he’s a great guy, but in reality those things do the opposite

    I’m against inequality, but for a monetary system structure and policy that essentially bails them out for eternity (over leveraged system), that doesn’t get money to the real economy, that helps wall street, hurts poor savers, etc

    then after 5 years of QE, not doing what it should (what his models say). instead of altering things (advocating structural changes to the financial system, etc) he essentially says more.

    no real science type could ever say this, and not admit to being wrong in major aspects of their beliefs. It’s not rational in any way, and not honest from an academic.

    he’s an intellectually dishonest pseudo academic

    1. Ronald Pires

      In particular, I agree with the cherry-picking complaint, especially as to Krugman and the ACA debate. There of course is a crew on the right of this debate (not all of them, mind you) whose heads are completely up their backsides, and Krugman completely restricts his arguments to opposing this low fruit rather than engage the more substantial complaints (from both the left and the right) regarding the ACA. In fact, Krugman knows very little about how health insurance actually operates, and while most people probably fall into this class, most people do not have a platform at the NY Times to promote as good a law which produces perhaps the worst insurance people could buy.

  7. Ignacio

    I have read a lot of Krugman’s columns at the NYT as well as his book “The great unravelling”. I have to say that I feel sympathy for many of the assertions he makes. At the same time, I feel annoyed when he resorts to his ISLM models, which I cannot understand, or when he assumes the “competitivity” and labor costs memes to compare countries performances. I think that Krugman’s ability to “translate” his ISLM models in understandable plain english is what makes him so mediatic but his credibility requires the public to swear faith in models well beyond our understanding.

  8. George Finch

    Krugman is now sliding to the views of those he either ridiculed or overlooked in the 90s, but he still hasn’t examined his basic assumptions and “models”. I wonder if even understands that ‘economics’ is not a ‘science’ and really is political economy. I am just a lay person trying to understand, but I can’t take any theorist seriously unless they have tried to grapple with Marx, Minsky and yes Keynes.

  9. financial matters

    Some other support for this view..

    “”Keynes clearly anticipated the problem that the hypothetical neutral rate might need to be negative for the saving=investment equilibrium to be consistent with full employment. Where he parted company with the Hicks-Hansen-Samuelson ISLM Keynesians was over the belief that this is a problem to be resolved with monetary policy.

    Keynes argued that the cause of unemployment is not really that the interest rate is too high but that the “marginal efficiency of capital” (the return to investment) is too low. The MEC can easily be negative: looking to the future, if investment is expected to produce losses, the MEC is negative and there is no monetary policy that can induce firms to take those losses. For Keynes, there was no reason to introduce a notion of “real”—the problem is nominal. Yes, the nominal rate cannot fall below zero, but the nominal expected returns can be negative. So, no investment, no matter how loose monetary policy is.

    Keynes did perceive some advantage of inflation, which can raise the future expected returns relative to today’s cost of investing. That would raise the MEC relative to the (nominal) interest rate. This is not because some imaginary “real” rate becomes zero but rather because the MEC rises with higher expected returns. However, in a slump with depressed expectations, even Fleets of Fairies will not do the trick. You need some real evidence that things will get better. And it must be personalized: a higher general rate of inflation does not mean that your expected returns will be higher. You want more demand. Even if monetary policy could cause inflation, you need higher expected sales to induce putting in place more capacity. Monetary policy cannot guarantee that.

    You need fiscal policy.

    As an aside, the worst thing that happened to mainstream macro since the mid-1960s was the introduction of expectations into mechanical-hydraulic Keynesianism. First we got Friedman’s adaptive expectations that presume short-run fooling, then Lucas’s rational expectations with fooling only in the case of random policy, then Real Business Cycle theory with no fooling at all, then New Keynesian fooling due to quasi-rational rigidities, and then finally on to belief in magical mysterious and apparently mercurial Expectations Fairies. But that’s a big and controversial topic for another day”


    or more simply..

    ISLM completely flawed. Both IS (investment/savings) and LM (liquidity preference/money supply) curves flawed. (not stock flow consistent)»+Podcasts%29

    1. huxley

      Flawed, but not entirely. It works well enough for first approximations at least, and better if you include refinements that compensate for its weaknesses.

      The situation with IS/LM is analogous to the situation with Newtonian mechanics with respect to relativistic mechanics. Newtonian mechanics works just fine in conventional human circumstances, just not at relativistic scales. That doesn’t make it ‘wrong’, just incomplete. Properly interpreted, relativistic mechanics represents a refinement of the Newtonian, not a complete replacement. Analogously, IS/LM is amenable to refinements as well.

      Either way, you’re not likely to come up with any model that works perfectly in all situations, in either mechanics or economics. The trick is to know your tools and their limitations, because they’re all going to have them, and to know how to compensate for those limitations to achieve practical results. If you just want to make it a snob contest, well, here’s your prize:

      1. Ben Johannson

        Hicks, the creator of the ISLM model, rejected it as a classroom toy. I have yet to see anything it may do which is not done better by conceptual or narrative models.

        1. huxley

          IS/LM is a conceptual, narrative model. How did you miss that? Perhaps you’re just in too much of a hurry to be dismissive. A snob, like Hicks.

          Don’t you like classroom toys, or do you prefer high-end mathematics unrelated to the real world? Hicks himself was a big fan of Hayek and therefore discountable. And Kaldor-Hicks makes him rather a champion of wealthy predators, now doesn’t it?

          1. Ben Johannson

            A snob, like Hicks.

            Ad hominem, the first resort of the uninformed.

            Hicks himself was a big fan of Hayek and therefore discountable.

            You might want to think about that statement.

            1. huxley

              I prefer my neoconservative interlocutors to be thin-skinned, whining loudly when even slightly discredited.

    2. PaulArt

      ‘Financial Matters’ – Dude or Dude-ess as the case maybe, fantastic pithy analysis. I doff my hat to you.

  10. trish

    Who Krugman is writing for these days? It seems Krugman is virtually a god to regulars at his column & blog. When I used to go to his blog regularly, this bunch of sheep would turn viciously on anyone who dared question him (I’m not talking about the trolls). They all seemed to pride themselves on being “serious liberals” -just like him!!!
    Content to shoot down the (easy) far-right targets, these types, obamabots all (including krugman himself), have abetted (along with obama hope-and-change himself) the further skewing of what is “liberal” and “progressive,” and allowed more damage to be done than the republicans could have dreamed..

    1. paul

      I think he’s writing for those organising the coming of the second clinton era.
      Anyone wanting to open a book on how quickly he will raise the flag for the ghoul, or how many sentences in he will declare her to be a character willing and able to take those ‘tough decisions’ that the world requires?

  11. diptherio

    Economics (n)–the practice of explaining to the downtrodden the necessity of their state while at the same time idolizing their “trodders.” Apologetics for the status quo, often sprinkled with mathematics.

  12. diptherio

    From the fixingtheeconomists article linked to in the post:

    At one point [Krugman’s] support of Pete Peterson’s Social Security privatisation campaign is mentioned (yep, old Pete Pete was selling that hoary “Social Security is imminently broke” line back in ’96 and Krugman at one point fell for it).

    Paging Dr. Haygood….

    1. susan the other

      We need demand side economics. Not just because supply side is totally tapped out. As long as we qualify demand, quantifying it will be easy.. Since Social Security is a social good and is also in high demand it is amazingly and aggressively stupid to deny there is a demand for it. Other demands are being summarily ignored, like environmental demands. I sense a pattern here. The most important question is WHAT KIND OF DEMAND? Beneficial or shittydeal?

  13. huxley

    Krugman received the so-called Nobel Prize in economics, which is sponsored by the global bankster elite and, after all, has nothing to do with Alfred. They don’t pass those out to people who offend the bankster class and criticize it on its actual demerits, which alone tells you that Krugman, like Akerlof and Stiglitz, are in the bankster fold.

    As usual, Krugman does tell the truth and, as usual, does not tell the whole truth. After so many years of following him I’m persuaded that his exploitation of the Blinding With Science fallacy is a bit ham-handed. It’s gotten old. But with all due respect to Mr. Pilkington, Krugman’s problem isn’t his resort to the IS/LM model but his misuse of it. All things being equal, the model does correctly predict the effects cited. But Krugman neglects to account for corrupt factors in his analyses. The predictions fail, not because of the model, but because all things really are not equal. The model itself is okay so far as it goes, but with Krugman it does not go far enough.

    As it turns out, the IS/LM model can be used to make predictions which are correct. Properly employed, the model is useful in exposing the corrupt factors which Krugman mysteriously avoids. It works when analyzing the failure of his take on ‘free trade’ by accounting for the fact that there’s nothing free about it. It also works when accounting for the fact that mortgage rates have been effectively gamed, the better to entice victims.

    Krugman’s take on deficit spending is also shown to be incorrect. It’s sold on the assumption that it will be put to the economically and socially useful purposes, when in fact that spending tends to accrue to the wealthy in the form of corporate welfare, and therein lies much of the error. Naturally the rich love deficit spending because it’s a risk-free return, which is another reason why we have so much of it. The country borrows money from the rich and pays them interest on it, and then turns around and gives it away to the rich. What could be better? This makes deficit spending yet another way of weaseling the general population into subsidizing the rich and making a debt peon out of the country itself: Greece and Ireland were just for practice.

    Moreover, there are limits as to how much debt can be economically constructive even if actually put to economically-constructive uses, and it’s necessary to distinguish between debt that is economically useful and that which wastefully accrues to the rich. Krugman seems unable to make such a distinction. With him it’s all good.

    1. financial matters

      -It’s interesting that stagflation is the cause of most US inflation rather than increased demand, so not related to Phillips curve. For inflation at less than full employment it depends on where the demand is generated. Inflation: too many speculators chasing too few commodities.-»+Podcasts%29

    2. PaulArt

      Well, he does talk about inequality, he has been relentlessly focusing on inequality these last few weeks.

      1. Yves Smith Post author

        Only now when it is safe, fashionable, and perhaps most important, Obama is giving it lip service.

        1. Jackrabbit

          And Obama’s “plan” – a small increase in minimum wage – doesn’t effectively tackle inequality at all.

    3. Ben Johannson

      As it turns out, the IS/LM model can be used to make predictions which are correct.

      The ISLM model can be made to say almost anything one wants. It is so simplistic as to be totally useless for real application, exactly as one would expect for something which relies on two equations. Draw intersecting lines at a point which justifies your preconceptions and you too can write for the New York Times.

      1. huxley

        Depends on how you prefer to use it, rather like any useful tool. But then, even the Bible can be perverted. How would you say your own perversions run? Some of us are biased in favor of honesty, but far be it for anyone to make such assumptions about, well, you, for example.

      2. skippy

        Ben, don’t you just love the knee jerk smearing one gets when one points out the IS – LM quality’s… the power of economic mathematical hypography in the form of iconography compels you[!!]… the power of excel compels you… power point compels you[!!!]… to believe[!!!!].

        skippy…. come on huxley, Krugman is not the only one, tho he is the most quisling. I just wish the still wore funny hats….

        1. huxley

          Believe what you like. Krugman has been wrong at least as often, and more deeply, than he has been right, but that’s hardly the result of any ‘addiction’ to a standard teaching tool like IS/LM. I’m far more inclined to agree with William Grieder than Mr. Pilkington, who is much more to the point and less distracted by trivialities. Take NAFTA, for example:

          … Krugman was merely representative of the standard beliefs widely shared by his profession and embedded in government policies. The failure belongs to macroeconomics, an intellectual discipline now in shambles … Krugman’s over-confident answers to his own questions proved to be mostly wrong, as subsequent events made clear. So was the textbook theory in many instances. His most egregious error was perhaps the assertion that wages always rise with an economy’s rising productivity. Certainly that had been the American experience for many years, but Krugman did not seem to grasp that globalization liberated American businesses from sustaining that relationship.

          If I were you, or even Pilkington, I’d be much more concerned with Krugman’s tendency to dismiss the concerns of labor: even Adam Smith recognized that worker unions were probably the only way the general population could compete in a capitalist system, something Krugman seems unable to appreciate, even if you refer the positive experience of Germany to him. Equally, Krugman misses on the boat on the nature of debt, especially the differences between constructive debt and the current trends in predatory debt: deficit spending by itself is a non-solution, and destructively so, as I’ve pointed out. In all, Pilkington’s detraction of Krugman on IS/LM just doesn’t seem meaningful in view of the importance of other issues.

          1. skippy

            Firstly I don’t engage in the believe approach to observation – thinking – supported by excruciatingly reviewed data is a better tool methinks.

            Secondly I don’t engage in the Capital – Labor Binie-sque observer bias sociopolitical theory has devolved into, false framing of reality i.e. we are all humans… en fin.

            Thirdly “IS/LM just doesn’t seem meaningful in view of the importance of other issues.” – So in your observation – the linchpin used to justify all manner of sociopolitical policy is irrelevant to political policy “in view of the importance of other issues”… right?

            Huxley you seem to spend a lot of energy engaging in obfuscation wrt IS/LM, nothing here, look at this stuff, NAFTA, Government [FEE infested] et al, when the IS/LM is the whole point of the post.

            Skippy… This is compounded by your prolific attacks on this thread, much nashing of teeth and displays of branch waving.

            1. huxley

              Lame, skippy, just lame.

              Economics as a science is so haphazard that IS/LM represents about half the mathematical rigor it deserves. The only reason economics isn’t discounted as much as the other soft sciences is because it’s about money and power. Otherwise it’s a pile of cold baloney.

              Have you had a good look at your intentionally obscure posting style lately? Excuse me, sir, for trying to be clear. And excuse yourself for the grossness of your hypocrises.

              your prolific attacks

              You mean counterattacks, hypocrite.

                1. huxley

                  You’re just annoyed because your hypocrisy and corruption are so easily exposed for what they are.

                  Mr. Koch. Yes, we know.

                  1. skippy

                    I was completely unaware of the Koch bro’s interest in carrying capacity and how it relates to social organization w. an eye to sustainability.

                2. huxley

                  Present trends guarantee that horrific dystopia is inevitable, and soon. You do nothing that counters those trends in the least, but at least you can flaunt a vacuous egoism. I am content to know that you and your fellow phonies are agents of your own destruction.

                3. huxley

                  Secondly I don’t engage in the Capital – Labor Binie-sque observer bias sociopolitical theory has devolved into, false framing of reality i.e. we are all humans… en fin.


                  1. skippy

                    Your projections [personalized quality’s attached without quantification] invalidate any remnant of argument you might have once had.

                    Per the OP does the IS/LM quantify humanity, does Krugman use this objet d’art as a means to facilitate policy agendas, with out, having to step out side its framing of the human state – condition… in relationship to our enviroment – past, present and future.

                    skippy… or does all this boil down too – if we give up our demons… we give up our angles to rhetorical devices.

                  2. Ben Johannson

                    That’s a logical fallacy called “argument from incredulity”. Just because you can’t understand something doesn’t invalidate it.

            2. huxley

              By the way.

              Plutocrats love it when hypocritical NC commenters attack prominent liberals like Krugman. It spares them the trouble.

              And why is it that NC and it’s commentariat spend so much effort attacking opponents of corporatism, and so little effort attacking actual corporatists? When was the last time the much-vaunted “Yves Smith”, herself an operative in the utterly corrupt financial industry, critiqued any of the savageries of Adelman or the Kochs? One suspects that NC is a false and phony front for corporatist propaganda.

              1. Yves Smith Post author

                The left apparatus and Mark Ames (who we support aggressively, unlike a lot of other sites that have abandoned him) are already hot and heavy after them and don’t need out help. I regard the Vichy Left as at least as large a threat, and much less well covered.

                And this comment is a reader assisted suicide note, which we are only too happy to oblige.

                1. Walter Map

                  That’s harsh, but naturally informed dissent must be supressed, and dissenters must be exterminated. So sad that consignment to a reeducation gulag just wasn’t an option.

                  My but this tent is small. Couldn’t possibly accomodate any one of those nasty ‘Vichy leftists’, damn them all.

                  1. Yves Smith Post author

                    Classic case of projection. That’s the favorite tactic of the orthodox left for dismissing critics.

                  2. Ben Johannson

                    I suggest spending your time on another site, then. No one here is going to fall for Democratic Party PR, and you’re sure as hell not going to intimidate Yves Smith with Orwellian Newspeak.

        2. Ben Johannson

          It’s fascinating to follow this guy’s logic:

          Hicks sucks, because Hayek. But ISLM, which Hayek-loving Hicks created while influenced by Hayek, is great. But Hicks sucks because he rejects ISLM. But ISLM is great because Hayek, because Krugman, because Hicks . . .

          I suspect our amiable chum here is stuck in a feedback loop.

  14. trish

    the link to the Lorie Tarshis textbook piece is worth perusing. the success of the relentless push by the big-government-only-for-the-elite throughout history…

  15. craazyman

    actually PK might have done OK switching to a fixed-rate mortgage in 2003, if his variable rate was based on short-term yields. The 3-month T-Bill yield shot up from 1% 2003 to 5% by 2006, then it crashed to 0% by late 2008 as we all know.

    Other than that, I don’t have a clue since I don’t read Professor Krugman’s columns or anything in the NY Times.

    He’s probably right half the time. That’s the way it usually is with economic forecasts. Except some people are right less the half the time, in defiance of both probability and luck. But you don’t know if they’re just on a hot streak or if they’ve actually figured out some ingenious way to understand reality backwards. If I knew, i’d follow them and sell when they say buy. As it is now, I follow my own advice, which is just as bad. It’s hard to figure this stuff out without a Ouija Board.

    1. Philip Pilkington

      The Fed started hiking rates a year after Krugman’s piece. It had little to do with the Iraq War or the deficits rather it was in response to the historically low rates that had been set during the 2001 recession. It also didn’t appear to affect mortgage rates very much.

      1. Ben Johannson

        Right. The relationship between the short-term rate and mortgage rates is weak at best. Krugman of course was unaware of this, given his decades-long cognitive dissonance on how rates are set.

          1. Ben Johannson

            Me: The relationship between the short-term rate and mortgage rates is weak at best.

            You: The relationship between long-term interest rates. . .

            Slow down and read the words.

            1. huxley

              The relationship between the short-term rate and mortgage rates is weak at best.

              Where’s your evidence?

              1. Yves Smith Post author

                Go look at 2005 and 2006. The Fed started tightening in 2004 and mortgage originations ROSE, most of all in the riskiest credits (subprime, and on top of that, really drecky subprime). Any credit nerd will tell you that what is expected to happen in a tightening cycle is that demand for the riskiest credits falls off first.

                I have a long form explanation of why this took place in ECONNED.

    1. Ben Johannson

      Of course I don’t agree. Tax increases treat symptoms not the cause, which is the rise of Veblen’s leisure class, whom he also referred to as “higher barbarians”. They can only be dealt with by reform of corporate governance and I strongly suspect the progressive fixation on taxes is just another strategy to run cover for the people they claim to oppose.

          1. huxley

            I’m not. I’m exposing you as a shill for the rich, which is clearly justified by your opposition towards restoring taxes on them. Annoying, huh?

              1. huxley

                You’re anklebiting, neocon.

                I support shifting the burden of taxation from the poor and middle class to the rich.

                You, by contrast, have made clear your opposition to any such policy by opposing increasing taxes on the rich. Anybody can read the thread.

                Your turn.

                1. Lambert Strether

                  Readers: I’ve noticed in upstick in “progressive” trolling, lately. The demand is that their talking points be covered, or else. They’re harmless, unless of course you feed them by treating them as if they were engaging in good faith argumentation.

      1. MyLessThanPrimeBeef

        If there is a limit to personal or family wealth, wouldn’t that improve corporate governance?

          1. MyLessThanPrimeBeef

            Take away the motive to gamble recklessly for huge sum of money.

            Most private equity fund managers, derivative traders and banksters would have retired by now and no new blood to replace them.

            1. Ben Johannson

              Take away the motive to gamble recklessly for huge sum of money.

              In America???? You will never gain traction against the conservative riposte of “taking from some to give to others”. Never, ever, ever. Which is why the left always loses; it fights the same battles with the same tactics ad nauseum and can’t figure out why it has been defeated at every turn.

              1. huxley

                This, from the guy who flatly opposes increasing taxes on the predator class.

                There are plenty of shills for the rich posting on NC, pretending to be something else. Chances are you’re one of them.

                1. Yves Smith Post author

                  I suggest you read Ben’s history. You’ve got him all wrong. He’s an MMT advocate and your charges are both shrill and simply incorrect. Given that an estimated 6% of US wealth (and that’s all at the top) goes into tax havens, the traditional use of taxes as a redistribution mechanism may not be as effective as it once was. Remember, if they hold 40% of all wealth but have an additional 6% they are ferreting away, they are hiding nearly 15% of their holdings.

                  Fixing corporate governance may not sound as sexy, but that’s tantamount to saying “stop the looting before it occurs”. I like more progressive taxation better but corporate governance fixes are actually harder to object to in the policy sphere and have more odds of getting done in our current environment.

                  And your aggressiveness in this thread is in violation of comments policy. Keep it up and you are going into moderation.

              2. Calgacus

                Galbraith’s Predator State covers arguments on how the old progressive tax system affected corporate governance in positive ways, limiting conspicuous consumption etc. He doesn’t really support a return to that, except for revitalizing the estate tax. See his review of Piketty’s book for a little on this: Kapital for the Twenty-First Century?

                Personally, I am for more progressive taxation, perhaps more than most MMTers. Of course, it would have the effect of strengthening the value of the dolllar, giving some more room for public spending. But Mosler implicitly approved the soundness of my main logic for it a while ago, though perhaps not really agreeing with the content: Rich people should be taxed more, more progressively – in order to make them have less money. :-)

    2. Dan Kervick

      Personally, I am in favor of very heavily taxing the rich to reduce systemic inequality. We can easily offset any fiscal drag that creates by increasing spending by an equal or greater amount.

      1. allcoppedout

        I agree this. We have been neglecting how cheats can manipulate games. Ten players in a poker game are not differentiated by luck or skill in a poker game if two of them are ‘sharing’ cards. The problem with collapsing obscene wealth is more difficult for political, criminal and world-power reasons. There is no economic argument against removing obscene inequality, If true argument existed, they wouldn’t have to buy power.

      2. Ben Johannson

        Of course stronger progressive taxation is needed. But the history of liberals focusing on tax increases is that rates continue to fall to new lows. As Tip of the Spear in an overall political strategy (which liberals clearly do not have), this has not worked.

        Krugman et. al are holding up a big red sheet and telling Democrats to charge into it head first, only to pull it aside at the last second as the victims smash their skulls into a conservative concrete wall. They hold the sheet up again pronouncing that “this time it will be different”, and so Democrats crack their skulls again. How many decades of failure are sufficient to sink into peoples’ brains that new tactics are required?

        Conservatives have successfully ingrained into our thinking that taxation is a moral issue, one that is not vulnerable to direct assault. It has to be undermined over time by calling for changes a relatively conservative public will agree with, such as stopping CEOs from harming their corporations and taking compensation they haven’t earned. We do that by making the case that vast increases in their incomes have not generated vast increases in real wealth, that they take without work and harm producers.

    3. Jackrabbit

      Krugman asks:

      So who will be this generation’s Teddy Roosevelt?

      My take-away: Hillary will turn to populism. She will be a repeat of Obama: perfect and inevitable with really, really, really good intentions (did I mention how REALLY good they are?) that will be thwarted by those darn Republicans.

      = =

      Q: Why is Krugman so late to the inequality issue? Why wasn’t Krugman taking the Obama Administrationto task for:
      a) breaking his promise to eliminate the ‘carried interest’ tax deduction and
      b) the ‘fiscal cliff’ fiasco where Bush tax cuts were mostly made permanent while everyone else got the sequester (surprise!)?

  16. Alejandro

    How do you recycle trust with a history of un-fulfilled promises? Contort context by re-writing, white-washing or sanitizing history? We need to demand that his self-promoted clairvoyance provide some clarity on his updated views about “free-trade”. Do his “models” relate inequality with “free-trade”? Does he believe that “competitiveness” and globalization have weakened labors ability to share in productivity gains? If so, causality, unforeseen effects or speculative correlation? If causality, is it intentional or intensional?

  17. Chuck Roast

    Enough already…back to the original post.
    A very interesting and fascinating Bio of Lorie Tarshis. I was completely unfamiliar with him. More brick and mortar for the theories of the of continuity between the economic elite and the dissemination of hack academic propaganda.
    I was particularly interested in Tarshis’ service in North Africa as a “operations analyst for bombing raids” for the Army Air Force. Maybe he was the Colonel Cathcart of the 256th Bombardment Squadron.
    Nah, probably not.

  18. Beppo

    It’s amazing that the economy supports untold numbers of people, like Krugman, who spend their time publishing simply incorrect things. It also supports thousands of people at think tanks who churn out propaganda about other countries, in hopes of spurring defense spending. And they call sick people on disability “freeloaders.”

  19. Robert Hurley

    Is there an inverse relationship between the number of ad hominem attacks and the robustness of the central arguments? This site now bears too many similarities to the awful conservative radio talk shows! Data and theory should stand by themselves.

    1. Yves Smith Post author

      Your comment is an ad hominem attack, otherwise devoid of content. There’s a complete failure to engage the argument that Pilkington set forth and documented in some detail.

      Your strategy, BTW, is one of the favorite tactics within what passes for the left for shutting down critics, to claim that they are violating rules of discourse when they are simply calling a spade a spade.

      I also have reason to doubt your pretense at being a long-standing reader of this site. We’ve had far more heated threads, for instance, when we’ve criticized libertarians (which we do more than occasionally), pointed out that Ron Paul was to the left of Obama on a lot of issues (infuriating Obots), our early advocacy of Modern Monetary Theory (which drove many orthodox thinkers, particularly fiscal conservatives, crazy). And I find no evidence that you’ve ever commented here before, which is often the case with self-assigned enforcers who can’t be bothered to deal with the material at hand.

      1. Robert Hurley

        Exactly what I mean! No where did I claim to be a long time reader though I have read it off and on since I retired two years ago. Also I never suggested this site or any other should be shut down, but I did suggest rather than calling people names, you sick to the facts. Having spent my entire career, I’m 74, in private business, I dont think I qualify as a leftist. But now that I actually volunteer working with urban youth who have dropped out of school and with community organizing working with undocumented immigrants, I can see the value in changing the system to provide better opportunity to the poor. It is clear that our current system has not. I read this site and a number of others to try to better understand which policies I should support.

        1. Lambert Strether

          I think your volunteer work is great, and thank you for doing it. That said, I don’t care about “opportunity.” That’s just another name for rigging the game. I care about outcomes. “Show me the money.”

          1. Robert Hurley

            I suppose you don’t think the game is rigged now. Give the role of chance in life, I wonder if you would have the same opinion if you ended up in less fortunate circumstances. I have come to believe, that although free enterprise is the energy of growth, that the role of Government is to level the playing field without destroying that energy.

  20. Walter Map


    The consensus among ‘liberal’ sites like Counterpunch, Salon, Commondreams, Alternet, and Corporate Crime Reporter is that there is something seriously wrong with Naked Capitalism. It is a bit hard to see rejects Krugman, and Robert Reich, and others like them in toto, and attacks the Democratic party, which despite its huge faults is still all that protects labor unions and Social Security. But, as you say, it never attacks Republicans, or Adelman, or the Kochs, and hates the very name of ‘liberal’. Never any mention of Grieder, or P.C. Roberts, or Hedges, or Nader, or Paul Farrell, or the Union of Concerned Scientists, or Public Citizen, or many others who oppose corporate totalitarianism. That’s unfortunate, and it is telling.

    A wise head years ago informed me that the opposition to corporate totalitarianism has failed, and will ultimately fail badly, precisely because it cannot get its act together, and that Naked Capitalism is a prime example of how that happens. There’s a determination to throw the baby out with the bathwater, and it has proven quite determined to make The Good the Enemy of the Perfect. It’s an echo chamber, rejecting nuance and informed dissent, and that repression alone proves it to be a cult of personality. The curator likes it that way, and that’s a very bad sign. Whatever its intent may be, it does serve the purposes of global corporatists. Perhaps despite itself. And perhaps not: as you know, corporatist propagandists have become extremely sophisticated since we faced them down on the old NYT and Salon blogs.

    I recommend that we find some quiet parts of the world where we can enjoy what comforts are left to, to the end of our days, and stay out of the way of the malign history that is to come. The future is bleak, and a nightmare, and we can longer change that or even mitigate that. It will be ugly, and it will be weird ugly. We tried, but we failed, and that is not our fault, and it was never our responsibility. Our story ends, and it is time to turn the page.

    1. Yves Smith Post author

      Your comment contains so many misrepresentations I don’t know where to begin. But above all, I suggest you read another blog since you find us so distasteful. The web is large and you should go elsewhere.

      First, in case you missed it, this is a finance and economics blog, and only incidentally a political blog, as in we are about the political economy, not politics.

      Second, we care about getting policy right. If that puts us at odds with Democratic party hacks, um, loyalists, so be it. And this isn’t “the best is the enemy of the good”. The Obama Administration has generated a series of disgracefully bad policies, from the bank bailouts to the mortgage settlements to its support for toxic trade deals that would gut regulations to fracking to Obamacare to trying really really hard to cut Social Security and Medicare to almost going to war in Syria to preserving the surveillance state. You are seriously saying the Kochs and Adelman, who are not in control of the executive branch, are doing more damage at present to the health and welfare of ordinary people? They are dangers, certainly, but you really need to get your priorities right.

      Obama’s systematic neutering of the real left (see Jane Hamsher on the “veal pen”) and his cultivation of fauxgressives and clever use of identity politics has evidently blinded you to what he is about. He governs to the right of Reagan. He uses the Republicans as an excuse to do that. So he and his allies need to exaggerate the Republicans as a threat, when the differences to them are much less than they want you to believe (aside from on identity politics issues).

      And you are completely naive in how to deal with the Dems. The only way to pressure them is from the outside, with a credible threat. Labor had power when it was outside the Democratic party tent, a threat to the left. The reason gays have made as much political progress as they have is they made it very clear to the Dems (and the very few socially liberal Republicans) that they were willing to withhold support unless the party came to heel, and they were a rich and organized enough bloc that the party didn’t want to defy them.

      As to Krugman and Reich, you are also naive about what they are. They both supported Nafts, which cost America over 1 million jobs. That could be forgiven if they had recanted their earlier positions, but they haven’t. Both shockingly support the TPP and the Transatlantic trade deals, which are pure and simple sellouts to multinational corporations.

      You also forget that I wrote a book showing how mainstream economics led to the fallen standing of the US middle class and produced the financial crisis, which has exacted an even greater toll. Krugman and Reich are both followers, so they represent a continuing danger to the health and wellbeing of ordinary Americans. A well intentioned quack is still a quack. And as economists, they are much more in the ambit of this blog than the Kochs and Adelman.

      You seem to dislike that we aren’t partisan. You seem to think the Democrats offer a solution. You need to wake up and smell the coffee. As Lambert says, “The Republicans tell you they want to knife you in the stomach. The Democrats say, “We are much nicer, we only want one kidney.’ They don’t tell you that next year, they are coming for the other kidney.

      As for those other sites not liking us, pray tell me where you get your information. I can write for Salon any time I want to; they’ve asked for me to write for them weekly and that offer is open. Same is true for The New Republic. Alternet regularly asks me to link to and cross post their material. CommonDreams cross posted my material several times without getting permission (I insist that sites that cross post adhere to certain frequency limits). I told them that was not on and they might have taken offense. TruthOut would like to run more material than I let them have. CounterPunch is about as far left as we are (as in middle of the road Reagan era, which is way to the left of the Democratic party) so I can’t see why any there would have an issue with our site.

      Now some people who are Good Dems may grumble about us in comments, but that is hardly the same as the views of the people who run those sites, which you incorrectly claimed you represent.

      And as for our views, you also seem to miss that we regard the biggest issue as elite corruption which is a bipartisan affair:

      1. Hepion

        Liberalization of trade enjoys broad support among economists, also MMT economists support it. They think that unemployment is not caused by trade, but is caused by misquided monetary and fiscal policy.

        On what basis do you disagree?

  21. Fionna Merciolles

    Frankly speaking I failed to understand the logic given by the writer here. I think he is a die hard Krugman baiter. However, me making this comment does not mean that I’m accepting ‘flawlessness’ assumption of the IS-LM model or being a lover of Paul Krugman.

    However, what I think is that the IS-LM model works good in practical life too. In fact, multiplier effect works when stimulus is given by the government directly through its different job creating schemes rather than doling out stimulus to the private corporations, where most of the stimulus is eaten up by the top managers in fattening their salaries and perks. So, what I think is rather than doling out stimulus to the corporations for indirect job creation, the government should directly create job for real multiplier effect to work wonders and restore the so-called equilibrium.

    1. Yves Smith Post author

      With all due respect, you need to do better than this. Pilkington demonstrated how reliance on the ISLM led a Nobel Prize winner to make bad forecasts and wrongheaded policy recommendations repeatedly. If a skilled economist gets frequent bad results using ISLM, and heterodox economists made better calls, how can you maintain that it “works good in practical life”?

    2. paul

      I carry an IS-LM model with me everywhere I go. If I have a practical problem, I check that the two coloured lines still intersect, and then proceed. Its been a great comfort and has not let me down yet.
      I think it would make an excellent frontispiece for the Gideon bible (Marriot edition).

      1. craazyman

        Just hold up two fingers and squint while you cross them in front of anything you want, at any distance. No need to carry extra weight around!

  22. Michael G

    This article and its comments are a perfect example of why I read Krugman every day before NC. I go to NC, not because of the majority of sensible and informative articles, but because perhaps 10% really make me think and give me a fresh insight. Unfortunately, about 20% are pointless or wrong-headed rants like this article and its comments. I haven’t checked recently, but I suspect there is more informed discussion of how many angels can dance on the head of a pin.

    1. Lambert Strether

      Thanks for sharing your concern. Is there any particular reason you feel this article is a wrong-headed rant? Because it’s not waving the pom poms for “our side”?

    2. Yves Smith Post author

      This is a substance-free ad hominem attack. If you like Krugman, you should read him and not bother with visiting, much the less trying to police us. This site above all aims to encourage critical thinking. We are interested in debate on the merits of our ideas and analysis, but all you’ve told us is you are offended that we dare to criticize Krugman. If you have a reasoned critique of the substance of Pilkington’s post, we are all ears. But all you’ve told us is you don’t like that we are shooting at your prior belief about Krugman, when that it precisely the sort of thing we set out to do.

      The Web is a big place. It sound like you would much prefer to spend your time on sites that cater to your world view, and you might as well do that.

    3. Foppe

      Thanks for showing us what kind of person you are. Just to spell it out, it is quite telling that you blather on at length about how your ideological filter only admits in “10%” of articles give you “fresh insights” — as an aside, I truly admire who can uncritically use this kind of vacuous, po-mo self-actualization terminology without throwing up all over themselves — while having no substantive argument of any sort as to why you think this critique of Krugman is invalid.

  23. Alex Hanin

    In his latest effort (What I Mean When I Talk About IS-LM (Wonkish)), Krugman seems to be eating a piece of humble pie; at least by his standards. Basically, he says “OK, you’re right about this and that, but hey I’m perfectly aware this and that is right, I just think ISLM, in its marvelous simplicity, is better than the usual nonsense about austerity and inflation”.

    So ISLM is better than shouting “hyperinflation!!”, “expansive austerity!!”. Great.

  24. RalphR

    Wow, Democratic party trolls are out in force. They must be awfully worried about the midterms to be trying to pollute NC comment threads this far in advance.

Comments are closed.